2021 (12) TMI 258 - AT - Income Tax

Assessment u/s 153A - Disallowance of interest - HELD THAT - Disallowance was made by the ld. AO without making any reference to seized documents found during the course of search. Infact, the ld. AO himself of his order admits that in the course of assessment proceedings, it is observed that assessee has claimed expenses towards interest expenses and loan processing charges on loan borrowed from M/s. India Bulls Housing Finance Ltd., This observation clearly goes to prove that the ld. AO had only sought to re-examine the existing material already available on record while framing the search assessment for A.Y.2011-12 (being the unabated assessment year). The law is now very well settled that unless there is incriminating material found during the course of search, an unabated assessment shall not be disturbed in the search assessment. Reliance in this regard is placed on the decision of the Hon ble Jurisdictional High Court in the case of Continental Warehousing Corporation 2015 (5) TMI 656 - BOMBAY HIGH COURT and on the decision in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT In view of the above, we are inclined to allow the additional ground raised by the assessee and direct the ld. AO to delete the disallowance made in respect of interest paid on loan from India Bulls Housing Finance Ltd., Accordingly, the additional ground raised by the assessee is allowed

Summary

Issues:
1. Condonation of delay in filing appeal due to Covid-19 pandemic.
2. Disallowance of interest expenses on short-term business loan.
3. Additional ground challenging disallowance without incriminating material.

Issue 1: Condonation of Delay
The appeal in ITA No.851/Mum/2021 for A.Y.2011-12 was delayed by 18 days. The delay was condoned based on a Supreme Court order extending the time limit for appeals due to the Covid-19 pandemic. The appeal was admitted for adjudication after considering the circumstances of the delay.

Issue 2: Disallowance of Interest Expenses
The assessee contested the addition of ?12,74,850 towards disallowance of interest expenses on a short-term business loan. The appellate tribunal noted that the assessee had explained the facts during assessment and appellate proceedings. The tribunal admitted the additional ground challenging the disallowance without incriminating material and proceeded to adjudicate on the matter.

Issue 3: Additional Ground on Disallowance
The additional ground raised by the assessee argued that the disallowance of interest was unjustified as no incriminating material was found during the search, and the relevant assessment year was unabated. The tribunal acknowledged that this additional ground raised a legal issue crucial to the case, requiring no further verification of facts. The tribunal proceeded to address this ground first, emphasizing that for an unabated assessment to be disturbed, incriminating material found during the search must be present.

Detailed Analysis:
The tribunal highlighted that the search and seizure action under section 132 of the Income Tax Act was initiated on the ABIL group, which included the assessee company. The assessment for the A.Y.2011-12 was considered unabated as no incriminating material was found during the search related to this assessment year. The tribunal referenced legal precedents to support the principle that unless there is incriminating material discovered during the search, an unabated assessment should not be disturbed. The tribunal directed the assessing officer to delete the disallowance of interest paid on a loan from India Bulls Housing Finance Ltd., as it was made without any reference to seized documents found during the search. Consequently, the tribunal allowed the additional ground raised by the assessee, rendering the adjudication of the original ground moot.

In conclusion, the appeal of the assessee was allowed, and the disallowance of interest expenses was overturned based on the absence of incriminating material during the search. The tribunal's decision was pronounced on 30/11/2021.